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`Paper No.
`Filed: November 6, 2019
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`UNITED STATES PATENT AND TRADEMARK OFFICE
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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
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`THE MANGROVE PARTNERS MASTER FUND, LTD., and APPLE INC.,
`Petitioner
`v.
`VIRNETX INC.,
`Patent Owner
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`
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`Case IPR2015-010461
`Patent No. 6,502,135
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`
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`Patent Owner’s Request for Rehearing
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`1 Apple Inc., who filed a petition in IPR2016-00062, has been joined as a Petitioner
`in the instant proceeding.
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`I.
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`INTRODUCTION
`Patent Owner VirnetX Inc. (“VirnetX”) respectfully requests rehearing of the
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`Patent Trial and Appeal Board’s decision on VirnetX’s motion for additional
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`discovery, issued on October 23, 2019 (Paper No. 88, “Decision”). The Decision
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`granted VirnetX ten interrogatories, but otherwise denied VirnetX’s motion.
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`(Decision at 28.) Specifically, the Decision denied certain aspects of VirnetX’s
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`requests for production, denied VirnetX’s requested deposition of Petitioner The
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`Mangrove Partners Master Fund, Ltd. (“Mangrove”), denied VirnetX’s requested
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`deposition of Nathaniel August (Mangrove’s Founder and President), and denied all
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`of VirnetX’s requested discovery on third-party RPX Corp. (“RPX”). (Id.; see also
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`Paper No. 81, Patent Owner’s Motion for Additional Discovery at 5-6.) VirnetX
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`requests rehearing for two reasons. First, the Board should reconsider its decision
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`to deny VirnetX’s requested deposition of Nathaniel August and Mangrove (which
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`could be a single deposition). Second, rehearing is necessary in light of the Federal
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`Circuit’s recent decision in Arthrex, Inc. v. Smith & Nephew, Inc., No. 18-2140, 2019
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`WL 5616010 (Fed. Cir. Oct. 31, 2019), so that a new panel could consider VirnetX’s
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`original motion to remove constitutional concerns.
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`1
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`II. LEGAL STANDARD
`“A party dissatisfied with a decision may file a request for rehearing.”
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`Case No. IPR2015-01046
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`37 C.F.R. § 42.71(d). “The request must specifically identify all matters the party
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`believes the Board misapprehended or overlooked, and the place where each matter
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`was previously addressed in a motion, an opposition, or a reply.” Id.
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`III. STATEMENT OF REASONS FOR RELIEF REQUESTED
`A. VirnetX’s Requested Deposition-Based Discovery Should Have
`Been Granted
`The Decision did not disagree that VirnetX’s Motion established that some
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`additional discovery was justified. Instead, the Decision found that Mangrove had
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`essentially mooted much of VirnetX’s Motion since “Mangrove voluntarily
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`complied with [VirnetX’s] discovery requests to the extent they involve discovery
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`of communications, documents, and things arising before the Institution Decisions.”
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`(Decision at 7.) Critically, however, the Decision denied VirnetX’s motion with
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`respect to deposition-based discovery (which Mangrove did not volunteer) and, in
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`place of such discovery, granted interrogatories. (Decision at 8.) The Decision
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`appears to have done so for two principal reasons.
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`First, while the Decision acknowledged VirnetX’s concern that Mangrove’s
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`written answers could include self-serving representations (Decision at 16), the
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`Decision concluded that the answer to address this concern was to grant VirnetX
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`interrogatories (id.). This solution, however, did not address VirnetX’s argument
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`2
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`that deposition-based discovery and written discovery serve fundamentally different
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`roles, and that interrogatories cannot take the place of a deposition. (Motion at 14-
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`15; Paper No. 87, Reply in Support of Motion (“Reply”) at 3-4.) Indeed, courts have
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`repeatedly observed that deposition discovery is a “critical component of the tools
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`of justice” and “rank[s] high in the hierarchy of pre-trial, truth-finding mechanisms.”
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`Founding Church of Scientology of Washington, D.C. v. Webster, 802 F.2d 1448,
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`1451 (D.C. Cir. 1986); see also Alexander v. FBI, 186 F.R.D. 113 (D.D.C. 1998) (at
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`deposition, “‘there is no opportunity to reflect and carefully shape the information
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`given’”) (citation omitted).2
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`Second, the Decision appears to have credited Mangrove for “provid[ing]
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`evidence that it had a valid business reason for filing the Petition,” namely, “a short-
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`selling strategy.” (Decision at 18-19.) This finding, if anything, highlights the
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`problem with relying solely on written answers from Mangrove rather than a
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`deposition. While a short-selling strategy may have been part of Mangrove’s
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`2 The Decision also noted that “[VirnetX] previously agreed to the appropriateness
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`of interrogatories” instead of depositions. (Decision at 9 (citing Paper No. 82,
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`Petitioner’s Partial Opposition (“Opposition”) at 11).) However, that was in a
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`different case, at a different stage, involving discovery directed to a different party,
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`and different issues.
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`3
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`approach (thus allowing Mangrove to wordsmith its answer to focus on that
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`Case No. IPR2015-01046
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`strategy), the evidence that Mangrove voluntarily produced suggests an underlying
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`connection between Mangrove’s VirnetX-related short-selling strategy and
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`Mangrove’s RPX-related strategy that Mangrove elided in its answers. As VirnetX
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`explained in its Reply (which presented VirnetX its first opportunity to address
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`Mangrove’s voluntarily-produced information), the information provided by
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`Mangrove suggested a possible connection between the two strategies given that
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`both were initiated in the exact same month. (Reply at 1-3.) Mangrove, however,
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`did not even acknowledge—much less explain—this timing relationship. This lack
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`of transparency is difficult to overcome when discovery is limited to written
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`discovery, which is indeed precisely why deposition-based discovery “rank[s] high
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`in the hierarchy of pre-trial, truth-finding mechanisms.” Founding Church of
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`Scientology of Washington, D.C., 802 F.2d at 1451. The Decision entirely
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`overlooked VirnetX’s argument about the relationship in timing between
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`Mangrove’s VirnetX and RPX-related strategies. (Reply at 1-3.)
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`Particularly in a case like this, where VirnetX has agreed to limit its request
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`to a single 4-hour deposition (which should not unfairly burden Mangrove),
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`VirnetX’s request for deposition-based discovery should have been granted. There
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`is no dispute that VirnetX established justification for pre-institution-related
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`4
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`additional discovery and, as VirnetX explained in its Motion and Reply, a deposition
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`is a critical element of that discovery.
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`B. Rehearing Is Necessary in Light of the Federal Circuit’s Arthrex
`Decision
`The Decision Suffers from the Same Appointments Clause
`1.
`Problem that the Federal Circuit Identified in Arthrex
`In Arthrex, the Federal Circuit held that “the current structure of the Board
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`violates the Appointments Clause.” 2019 WL 5616010, at *8. Examining statutory
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`provisions that limited both review of administrative patent judges’ (APJs’)
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`decisions and the removal of APJs from office, the court concluded that APJs are
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`“principal officers” for purposes of the Appointments Clause. The Constitution
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`requires that principal officers be appointed by the President with the advice and
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`consent of the Senate. Id. at *1, 8. Under the Patent Act, however, APJs are
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`appointed by the Secretary of Commerce, see 35 U.S.C. §6(a)—a mode of
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`appointment permissible only for “inferior officers.” Arthrex, 2019 WL 5616010,
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`at *3. To “remedy the constitutional appointment problem,” the Federal Circuit in
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`Arthrex “sever[ed] the portion of the Patent Act restricting removal of the APJs,”
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`and then vacated the Board’s decision and remanded for a new hearing before “a
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`new panel of APJs.” Id. at *1, *11.
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`The constitutional issue that the Federal Circuit identified in Arthrex applies
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`to the Decision here, especially given the facts and history of this proceeding. As in
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`5
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`Arthrex, the Decision issued at the time when “the current structure of the Board
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`violate[d] the Appointments Clause”—before the Arthrex Court had severed the
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`removal protections that rendered APJs principal officers. Id. at *9. The Decision,
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`issued before the Federal Circuit decided Arthrex, understandably overlooked this
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`Appointments Clause problem.
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`This Appointments Clause problem exists even if ruling on discovery motions
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`is a task that could be assigned to “inferior officers” within the meaning of that
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`clause. The Arthrex court held that APJs are principal officers because their
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`decisions are not subject to review by presidential appointees and because they are
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`protected from removal. Id. at *3-8. Both of those features apply with equal force
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`to APJs’ discovery rulings. Moreover, even if a principal officer “on occasion
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`performs duties that may be performed by” an inferior officer, that “does not
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`transform his status under the Constitution.” Freytag v. Comm’r, 501 U.S. 868, 882
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`(1991). To be a principal officer for one purpose is to be one for all purposes. See
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`id. Thus, any action taken by a principal officer whose appointment does not
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`comport with the requirements of the Appointment Clause is constitutionally infirm
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`under the Federal Circuit’s reasoning in Arthrex.
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`2.
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`A New Panel Should Rule on VirnetX’s Motion for
`Additional Discovery to Avoid Constitutional Concerns
`The Federal Circuit in Arthrex vacated the Board’s decision and remanded for
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`“a new hearing” before “a new panel of APJs.” 2019 WL 5616010, at *12; see also
`6
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`id. at *1. The court based that remedy on a recognition that a judge who has
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`previously ruled in a case while appointed in contravention of the Appointments
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`Clause “‘cannot be expected to consider the matter as though he had not adjudicated
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`it before. To cure the constitutional error, another [judge] . .. must hold the new
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`hearing.’” Arthrex, 2019 WL 5616010, at *12 (quoting Lucia v. SEC, 138 S. Ct.
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`2044, 2055 (2018)). Thus, as in Arthrex, a new panel of APJs who have not
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`previously participated in this case should consider VirnetX’s discovery motion
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`anew on rehearing, especially given the facts and history of this proceeding.3
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`Reassignment to a new panel for consideration of VirnetX’s motion for
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`additional discovery is particularly appropriate here given that the panel previously
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`issued a final written decision regarding the challenged claims of VirnetX’s patent—
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`a decision the Federal Circuit subsequently vacated. VirnetX Inc. v. The Mangrove
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`3 To further avoid a constitutional cloud over the reconsideration, the Board should
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`ensure the new panel is composed of APJs who have not previously participated in
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`any other proceeding involving the same patent. The Arthrex court’s observation
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`that an APJ who previously sat in this case “‘cannot be expected to consider the
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`matter as though he had not adjudicated it before,’” Arthrex, 2019 WL 5616010, at
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`*12 (quoting Lucia, 138 S. Ct. at 2055), would likewise apply to an APJ who
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`previously decided the validity of the same patent.
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`7
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`Partners Master Fund, Ltd., 778 F. App’x 897 (2019). Under the logic of Arthrex,
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`Case No. IPR2015-01046
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`reconsideration of the case on remand should proceed before a different panel. The
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`APJs who presided over, and ruled in, this case while appointed in contravention of
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`the Appointments Clause “‘cannot be expected to consider the matter as though
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`[they] had not adjudicated it before. To cure the constitutional error, another [panel]
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`. .. must hold the new hearing. ’” Arthrex, 2019 WL 5616010, at *12 (quoting Lucia,
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`138 S. Ct. at 2055).
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`Having a different panel consider anew VirnetX’s motion resolved by the
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`Decision would comport with other agencies’ actions in similar situations. For
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`example, in Lucia, the Supreme Court declared that Securities and Exchange
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`Commission (“SEC”) administrative law judges had been appointed in violation of
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`the Appointments Clause, and ordered that the parties in that proceeding be given a
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`new hearing before a new, properly appointed officer. Lucia, 138 S. Ct. at 2055. In
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`response, the SEC ordered that all parties in all pending proceedings implicating the
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`Appointments Clause issue “be provided with the opportunity for a new hearing
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`before an ALJ who did not previously participate in the matter.” In re: Pending
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`Administrative Proceedings, Exchange Act Release No. 83907 (Aug. 22, 2018),
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`https://www.sec.gov/litigation/opinions/2018/33-10536.pdf.
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`It
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`specifically
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`instructed that the new ALJs should “not give weight to or otherwise presume the
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`correctness of any prior opinions, orders, or rulings issued in the matter.” Id. To
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`8
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`avoid constitutional doubt—and the possibility of a future Federal Circuit remand—
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`Case No. IPR2015-01046
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`the Board should follow the same approach here, especially given the facts and
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`history of this proceeding.
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`IV. CONCLUSION
`For at least these reasons, Patent Owner respectfully requests reconsideration
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`of the Decision.
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`Dated: November 6, 2019
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`Respectfully submitted,
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`By: /Joseph E. Palys/
`Joseph E. Palys
`Registration No. 46,508
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`Counsel for VirnetX Inc.
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`9
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`CERTIFICATE OF SERVICE
`Pursuant to 37 C.F.R. § 42.6(e), I certify that I caused to be served on the
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`counsel for Petitioner a true and correct copy of the foregoing Patent Owner’s
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`Request for Rehearing by electronic means on the date below at the following
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`addresses of record:
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`Abraham Kasdan (akasdan@wiggin.com)
`James T. Bailey (jtb@jtbaileylaw.com)
`IP@wiggin.com
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`Jeffrey P. Kushan
`Scott Border
`Thomas A. Broughan III
`iprnotices@sidley.com
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`Dated: November 6, 2019
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`By: /Joseph E. Palys/
`Joseph E. Palys
`Registration No. 46,508
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`Counsel for VirnetX Inc.
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